A Housing Bubble in China: A Rationale for Government Intervention

As of October, 2016, China was in the midst of a dizzying housing bubble. A month before, “economists at the Bank of China warned in a report that worsening asset price bubbles were adding to a frothy market that could result in trouble.”[1] Shanghai’s average housing price was up nearly one-third from a year before; prices in major cities like Beijing and Guangzhou were not far behind. The recognition of the bubble—which does not come easily—should have triggered counter-cyclical measures by the Chinese government.